What is going on with Silicon Valley Bank???

#1

This is the bank of choice for many startups, my own employer included.

Silicon Valley Bank Fails After Run by Venture Capital Customers
The Federal Deposit Insurance Corporation took control of the bank’s assets on Friday. The failure raised concerns that other banks could face problems, too.

If there is one enduring axiom in banking, it is this: Don’t run out of money.

Silicon Valley Bank, a lender to some of the biggest names in the technology world, did just that on Friday, becoming the largest bank to fail since the 2008 financial crisis. The move put nearly $175 billion in customer deposits, including money from some of the biggest names in the technology world, under the control of the Federal Deposit Insurance Corporation.

It was an extraordinary denouement less than two days after the bank shocked Wall Street and its depositors with emergency moves to raise cash and stave off a collapse in the face of withdrawal requests and a precipitous decline in the value of its investment holdings. The bank as of Friday morning was working with advisers on a potential sale, a person with knowledge of the negotiations said, and had halted trading in its shares in the wake of a rapid fall.

The F.D.I.C. created a new bank, the National Bank of Santa Clara, to hold the deposits and other assets of the failed one. The regulator said in a news release that the new entity would be operating by Monday and that checks issued by the old bank would continue to clear.

But for customers with deposits totaling more than $250,000, the news was grim. Customers with accounts that surpassed that amount — the maximum covered by F.D.I.C. insurance — would be given certificates for their uninsured funds, meaning they would be among the first in line to be paid back — though potentially only partially — with funds recovered while the F.D.I.C. holds Silicon Valley Bank in receivership.

Perhaps the most immediate concern for investors is the possibility that other banks could face their own troubles.

Gift link: https://www.nytimes.com/2023/03/10/busi ... =url-share

tek · #2

Following the bank’s collapse on Friday, uncertainty in the startup community only grew. Arjun Sethi, an investor at Tribe, tweeted Friday that “right now VCs are writing emails to disclose SVB exposure.”

Parker Conrad, the CEO and co-founder of HR platform Rippling, said Friday that his company has learned that some customers’ payrolls are being delayed due to the bank’s “solvency challenges.”

“Our top priority is to get our customers’ employees paid as soon as we possibly can, and we’re working diligently toward that on all available channels, and trying to learn what the FDIC takeover means for today’s payments,” he wrote on Twitter.

https://www.cnn.com/2023/03/10/tech/sil ... index.html

There is some possibility that this will affect me directly

#3

#4

Why put everything in one basket? Maybe these customers should have diversified with cybercurrency, the greedy snobs.

#5

tek wrote: ↑Fri Mar 10, 2023 2:20 pm
Following the bank’s collapse on Friday, uncertainty in the startup community only grew. Arjun Sethi, an investor at Tribe, tweeted Friday that “right now VCs are writing emails to disclose SVB exposure.”

Parker Conrad, the CEO and co-founder of HR platform Rippling, said Friday that his company has learned that some customers’ payrolls are being delayed due to the bank’s “solvency challenges.”

“Our top priority is to get our customers’ employees paid as soon as we possibly can, and we’re working diligently toward that on all available channels, and trying to learn what the FDIC takeover means for today’s payments,” he wrote on Twitter.
https://www.cnn.com/2023/03/10/tech/sil ... index.html

There is some possibility that this will affect me directly

Me too, also. Our money guy is assuring us that everything is probably going to be OK, but he is also reaching out to investors and setting up alternate accounts.

FiveAcres · #6

According to Barron's, SVB Financial CEO Greg Becker sold SVB stock two weeks ago:

Roughly two weeks before SVB SIVB –60.41% Financial Group stock collapsed and its Silicon Valley Bank unit was closed by regulators, its top executive sold millions of dollars of shares.

SVB (ticker: SVB) President and CEO Greg Becker sold 12,451 shares on Feb. 27 for $3.6 million, an average price of $287.42 each. That day he also acquired the same number of shares using stock options priced at $105.18 each, according to a form he filed with the Securities and Exchange Commission.

https://www.barrons.com/articles/svb-fi ... r-f5089a4d

ETA: I hope the employers of Fogbowers manage to mitigate any impact.

FiveAcres · #7

Gift link from Washington Post:

https://wapo.st/3mMW5KT

The FDIC said it created a new bank to manage the firm’s operations, starting on Monday — a rare occurrence in a bank failure that typically means that the process was rushed.

Officials at the FDIC worked into the early morning hours on Friday as it became increasingly clear that regulators may have to shut down the bank, according to two people briefed on the matter, who spoke on the condition of anonymity to describe private deliberations.

The looming disaster sneaked up on them quickly. In previous crises, officials have had weeks or months to try to find a larger bank to take over a smaller one in distress. The highly accelerated timetable in this instance made that extremely difficult if not impossible.

#8

This won't affect me directly, but it could cause trouble for some of our Bay Area customers.

Gregg · #9

If your company had money there, they'll likely have issues. Individual accounts up to $250k are FDIC insured but corporate accounts are not. So not all uninsured amounts are going to be available right away, although they will probably get their money eventually. How long eventually is is anyone's guess.

#10

Silicon is top heavy with deposits over the $250k limit compared to other banks by far. Bodes poorly. Could sink some ships for sure.

#11

Roku Had One-Fourth Of Its Cash In Failed Silicon Valley Bank, Most Of It Uninsured; Streaming Giant Says It Can Still Meet Expenses

As of Friday, about $487 million of Roku’s total cash and cash equivalents of $1.9 billion was held by SVB, Roku said. About $1.4 billion of the company’s cash is spread across multiple large financial institutions.

“At this time, the company does not know to what extent the company will be able to recover its cash on deposit at SVB,” the filing said. “Notwithstanding the closure of SVB, the company continues to believe that its existing cash and cash equivalents balance and cash flow from operations will be sufficient to meet its working capital, capital expenditures, and material cash requirements from known contractual obligations for the next twelve months and beyond.”

https://deadline.com/2023/03/roku-cash- ... 85439/amp/

#12

neonzx wrote: ↑Fri Mar 10, 2023 4:13 pm Why put everything in one basket? Maybe these customers should have diversified with cybercurrency, the greedy snobs.

For companies financed by SVB, keeping all their money at SVB was a covenant of their debt.

Laissez Faire!, Laissez Faire!, Laissez-les échouer?

https://twitter.com/bhargreaves/status/ ... 800429599

Brad Hargreaves
@bhargreaves

$SIVB closure & receivership is going to have a massive impact on the tech ecosystem. SVB was not just a dominant player in tech but were highly integrated in some nontraditional ways. A few things we'll see in the coming days / weeks...

One, SVB was incredibly integrated into the lives of many founders. Not just their startup's bank & lender, but also provided personal mortgages and other financial services. A whole mess for FDIC (or the eventual buyer) to unwind.

Two, any "uninsured" balances at SVB - those above $250K - are in jeopardy. FDIC plans to pay them out "as it sells the assets of SVB". Lots of startups exclusively banked with SVB as *this was a covenant of their debt*!

CEOs yesterday faced a hard choice: Pull your deposits and go into default on your venture debt or risk losing everything if the bank failed. Many chose to hold tight as SVB's outright failure seemed outlandish

Now they may not be able to make payroll next week. Unpaid wages pierce the corporate veil, so boards are *incredibly* sensitive to employing workers they may not be able to pay.

And given the weak fundraising environment, a number of startups have been reliant on venture lenders - e.g., SVB - not aggressively pursuing amortization of debt or triggering default for covenant foot faults (e.g., cash balances). How will the FDIC handle this? Mass defaults?

Important to note: this is now impacting companies *that don't even bank with SVB* because their payroll providers do.

https://twitter.com/Asta_de_B/status/16 ... 2000617482

Just B
@Asta_de_B
Replying to
@bhargreaves
Even companies who had no business relationship with SVB can’t pay their employees because the payment processor used SVB to make those payroll deposits for them.

#13

chancery wrote: ↑Fri Mar 10, 2023 9:51 pm
neonzx wrote: ↑Fri Mar 10, 2023 4:13 pm Why put everything in one basket? Maybe these customers should have diversified with cybercurrency, the greedy snobs.
For companies financed by SVB, keeping all their money at SVB was a covenant of their debt.

Laissez Faire!, Laissez Faire!, Laissez-les échouer?

https://twitter.com/bhargreaves/status/ ... 800429599

Brad Hargreaves
@bhargreaves

$SIVB closure & receivership is going to have a massive impact on the tech ecosystem. SVB was not just a dominant player in tech but were highly integrated in some nontraditional ways. A few things we'll see in the coming days / weeks...

One, SVB was incredibly integrated into the lives of many founders. Not just their startup's bank & lender, but also provided personal mortgages and other financial services. A whole mess for FDIC (or the eventual buyer) to unwind.

Two, any "uninsured" balances at SVB - those above $250K - are in jeopardy. FDIC plans to pay them out "as it sells the assets of SVB". Lots of startups exclusively banked with SVB as *this was a covenant of their debt*!

CEOs yesterday faced a hard choice: Pull your deposits and go into default on your venture debt or risk losing everything if the bank failed. Many chose to hold tight as SVB's outright failure seemed outlandish

Now they may not be able to make payroll next week. Unpaid wages pierce the corporate veil, so boards are *incredibly* sensitive to employing workers they may not be able to pay.

And given the weak fundraising environment, a number of startups have been reliant on venture lenders - e.g., SVB - not aggressively pursuing amortization of debt or triggering default for covenant foot faults (e.g., cash balances). How will the FDIC handle this? Mass defaults?

Important to note: this is now impacting companies *that don't even bank with SVB* because their payroll providers do.
https://twitter.com/Asta_de_B/status/16 ... 2000617482

Just B
@Asta_de_B
Replying to
@bhargreaves
Even companies who had no business relationship with SVB can’t pay their employees because the payment processor used SVB to make those payroll deposits for them.

Thanks chancery! I agree that this will likely have implications well beyond SVB customers.

From my perspective, SVB seemed to be the "alternative" bank for high tech companies. Sort of like NASDAQ is to NYSE. I think people considered it a little more "start-up friendly" than more established banks like BofA, not risky. That's obviously no longer true.

I'd also be interested to hear JPC's take on this. He spent a long time in the the silicon valley finance ecosystem.

#14

This was in an email from POLITICO --

How the SVB collapse explains the economy
Inbox POLITICO Nightly <politiconightly@email.politico.com> Unsubscribe
Mar 10, 2023, 7:30 PM (11 hours ago) to me
BY BEN WHITE With additional reporting from Ari Hawkins

INTERCONNECTED — Two stories dominated economic headlines today: the spectacular collapse of Silicon Valley Bank (SVB) and a February jobs report that displayed a still-hot jobs market. These stories may seem largely unrelated. They are not.

Taken together, they offer a nifty microcosm of what exactly is going on in our highly complex, virtually impossible to predict, post-pandemic economy. And both events have potentially significant implications for what the Federal Reserve decides to do on interest rate policy at its meeting later this month.

Let’s start in Silicon Valley with the biggest bank failure since the 2009 financial crisis. SVB was among the go-to banks for start-ups and biotech companies. That sector, which gorged on cheap money for years, is currently one of the few now shedding workers (though not that many) as the Fed hikes rates to fight persistent inflation.

While Fed officials are generally happy to see some froth come out of the tech industry, they certainly weren’t hoping to help tip a bank with over $200 billion in assets into insolvency. And it certainly was not all the result of the Fed.

SVB was (yes, it’s now officially dead) a strange bank. Nearly all of its depositors held over the insured FDIC limit of $250,000 in their accounts. That insurance was created to end the parade of bank runs that dominated the Depression era.

But it did little to help SVB once its well-to-do depositors realized they could actually lose their money and raced to take it out. It all happened so fast — with a failed capital raise on Thursday — that the feds had to shut the place down Friday in the middle of the day, an extremely rare and highly dramatic move.

The question now is whether the Fed looks at SVB and wonders if all of its tightening could destabilize any other industries and the financial institutions that serve them.

One large bank failure may not induce the Fed to choose a quarter-point hike this month, instead of half-a-point. But at the margins, it could nudge them toward a quarter-point.

That brings us to the February employment report — which showed that outside of technology, the jobs market remains hot and the economy looks pretty good. The 311,000 jobs figure beat expectations. And the tick up to 3.6 percent unemployment (from 3.4 percent) happened for the very welcome reason that nearly half a million people rejoined the labor force.

The pace of wage gains also slowed a bit, though overall pay increases are proving fairly sticky, which the Fed believes (though not everyone agrees) is driving overall consumer price inflation.

January’s giant 517,000 jobs gain, which seemed wildly off the mark at the time, only got revised down to 504,000. Even industries expected to suffer under the weight of higher interest rates mostly fared well.

Construction employment grew by 24,000 even as higher rates are hammering home prices and the fear of recession is trimming back corporate investment plans. And both wage and employment gains continue to center on lower-paying retail and hospitality jobs.

So putting the picture together, some very wealthy Silicon Valley-types are taking tough hits. And the fact that SVB could drop dead so fast raises some regulatory questions. But on its own, the bank collapse is no reason to panic. Economic equality going down since the pandemic is a feature, not a bug.

The bigger question is whether the Fed’s actions wind up having similar but more delayed impacts on other industries. The Fed would accept this if it determines it is the only way to push annualized inflation from around 6 percent back to its target of roughly 2 percent. But this would be a crash landing, not a soft one.

We get one more giant piece of data next week ahead of the Fed meeting, with the latest reading on the Consumer Price Index coming on Tuesday. Expectations are for some very modest declines. If those don’t materialize — or if prices surprisingly tick up again — the Fed will blow off any SVB concerns and drop another half-point hike on the economy.

If the numbers are more Fed-friendly, the central bank will have a bit more room to consider whether to ease up on the economic brakes. Because no one wants to see more SVBs. Or to see millions of Americans who are not Tesla-driving tech folks take a big hit.

Agree on sending best wishes to Fogbowzers who may be affected.

It would be great to hear JPC's opinion about what's going on with this.

Suranis · #15

RTH10260 · #16

two months .... :splat:

#17

I just had an interesting phone call from my oldest sister. Her older son is a computer programmer who works for a contracting software company which does jobs for companies throughout the U.S. (Throughout the world?) Anyway, the latest job my nephew was working on was for the Silicon Valley Bank. Oops. That's the end of that job.

#18

The vultures are circling.

Wall Street Firm Pounces on SVB Implosion With Offer to Buy Deposit Claims

At least one Wall Street firm is sensing an opportunity in the panic around failed Silicon Valley Bank. Traders from Jefferies are contacting startup founders with money stuck at the bank, offering to buy their deposit claims at a discount, according to several people with direct knowledge of the matter.

The firm is offering at least 70 cents on the dollar for deposit claims,one of the people said, although that price is likely to change. The team is having conversations with startups over the weekend, according to a person familiar with the matter, although it hasn’t yet done a deal. Startups’ interest in selling their deposits could intensify by early next week, if there’s no sign that the FDIC will quickly find a buyer for SVB’s assets.

https://www.theinformation.com/articles ... sit-claims

#19

The Lawyers Guns & Money blog, quoting an Axios story, notes that SVB paid bonuses on Friday, the same day that the FDIC took over.
https://www.lawyersgunsmoneyblog.com/20 ... n-march-10

Can you say clawbacks?

tek · #20

The ripple effects are going to be pretty bad.. for one:

Etsy warns sellers of delay in processing payments due to Silicon Valley Bank collapse
One affected Etsy seller said the deposits delay would have a “catastrophic” effect on his business.

https://www.nbcnews.com/business/busine ... -rcna74475

#21

Gift link to a New York Times article. I especially like the two graphs - one showing Bank failures in each year by total assets, and one showing Biggest U.S. banks by total assets. - The Second-Biggest Bank Failure

#22

A list of SVB depositors someone posted on twitter.

https://www.documentcloud.org/documents ... depositors

#23

Can you say clawbacks?

I also read somewhere that the CEO sold $millions of shares 2 weeks before the collapse.

RTH10260 · #24

Phoenix520 wrote: ↑Sun Mar 12, 2023 3:25 pm
Can you say clawbacks?
I also read somewhere that the CEO sold $millions of shares 2 weeks before the collapse.

"You read it here first" https://thefogbow.com/forum/viewtopic.p ... 07#p179507

Slarti the White · #25

Phoenix520 wrote: ↑Sun Mar 12, 2023 3:25 pm
Can you say clawbacks?
I also read somewhere that the CEO sold $millions of shares 2 weeks before the collapse.

He cashed in options (that were for less than half the current price at the time) and then immediately sold the resulting shares. While it might have been legal, it sure looks bad.